Deferred tax liability
Tax postponed because the tax rules recognised something sooner than the accounts did. A firm that keeps investing can carry it indefinitely.
Where you will meet it
Deferred tax liability appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain deferred tax assets and liabilities and the valuation allowance
“A deferred tax liability arises where taxable income is currently below accounting profit and the difference will reverse.”
- Work out the effective, statutory and cash rates of tax and contrast them
“The cash tax rate is cash taxes paid divided by pre-tax income, and it differs from the effective rate because of deferred taxes: accelerated tax depreciation, for instance, pushes cash taxes below the expense and builds a deferred tax liability.”
Practise it
Practise deferred tax liability until it is automatic: questions that explain every wrong option.
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